In accordance with authority delegated to me by the
President, I am forwarding to you the FY 1997
unclassified report on Intelligence Community activities to
fulfill the statutory obligations under Section 109 of the
National Security Act of 1947.

The report evaluates the performance of the Intelligence
Community for FY 1996 in terms of its responsiveness to
policy objectives advanced by the Administration and reflects
the priorities articulated by the President for
implementation by the Director of Central Intelligence.

We are sending identical letters to all
Congressional committees that have an interest in this
topic.

Sincerely,

George J. Tenet

Enclosure:
Annual Report

ANNUAL REPORT ON
INTELLIGENCE COMMUNITY ACTIVITIES

This report responds to a Congressionally directed action
contained in the Intelligence Authorization Act for Fiscal Year
1997. Referencing Section 109 (as amended in 1996) of the
National Security Act of 1947, the Act directs the President to
submit an unclassified report "on the requirements of the United
States for intelligence and the activities of the Intelligence
Community." In keeping with this requirement, this report
identifies areas where intelligence is required to meet the
national security interests of the United States and reflects the
priorities established by the Administration for implementation by
the Director of Central Intelligence (DCI). It evaluates the
performance of the Intelligence Community for FY 1996 in terms of
its responsiveness to priorities advanced by the Administration.

ANNUAL REPORT ON INTELLIGENCE COMMUNITY ACTIVITIES

INTRODUCTION

The Intelligence Community is responsible for providing timely,
unique information to the policy level to support US national security
objectives. A central thesis governing the conduct of this effort is
that not all issues are of equal importance to US security interests. The
President in a directive to the Director of Central Intelligence has
unequivocally stated that his most important and immediate foreign
policy concerns are crises situations that pose a direct or immediate
threat to US interests, where the introduction of US forces is under
active consideration, or where US forces are operationally deployed and
at risk.

To this end, the Intelligence Community has provided significant
support to US diplomatic activities and deployed US forces in Bosnia
and to other crisis areas such as Haiti and Central Africa. In the case of
Bosnia, the Community provided near-real-time information, secure
communications, immediate and high-quality analysis, and the access
afforded by Intelligence Community liaison relationships to our top
diplomats and military commanders. These capabilities have been vital
to the protection of US forces in Bosnia and to efforts to implement the
Dayton Agreement.

In addition to supporting the US response to ongoing crises, the
Intelligence Community has carried out other high-priority, strategic
tasks:

Ensuring that the Intelligence Community has global
coverage-- namely, an effective warning capability to
provide indications of crises that may require
significant US diplomatic activity or military
operations; the capability to surge collection and
analysis when a crisis occurs; and a minimal, though
adequate, level of coverage on lower-priority countries.

Providing a sound programmatic and financial basis for
major new investments to ensure the Intelligence Community
increases its ability to deliver distinctive actionable
information well into the 21st century.

HIGH PRIORITY INTELLIGENCE TARGETS

Rogue States

The Intelligence Community has been directed to conduct end-to-end
collection and analysis on rogue states, such as Iran,
Iraq, North Korea, and Cuba, whose policies are
consistently hostile to the United States. The Community accords high
priority to these intelligence targets. During FY 1996, it delivered accurate,
actionable information on a continuing basis on these countries. Among the
Community's many accomplishments were the following:

Through a variety of collection means, intelligence provided
critical, unique, and timely information on events in Iraq
leading up to the fast-paced tactical US air strikes in
the southern part of that country during August
and September 1996. The near-real-time capability
to identity operating sites as soon as they were active enabled
mission planners to identify immediately new threats to US
aircraft and potential targets for planned air strikes.

Intelligence provided information on the plans of some of the rogue
states to acquire and or retain weapons of mass destruction and the
means to deliver them.

Intelligence continued to monitor Iraqi violations of economic
sanctions. It also provided evidence that Iran was allowing Iraqi
oil exports to transit Iranian territorial waters.

Strategic Powers in Transition

As major states in transition, China and Russia present formidable
strategic challenges. Both are political and economic powers that can decisively
affect US national security interests; both countries also possess
strategic nuclear forces. The Community continues to monitor the
political dynamics and military capabilities of these
nuclear-capable states.

A resurgent, hostile Russia could threaten US
interests in that it still retains a major
nuclear arsenal of nearly 6,000 deployed
strategic warheads and a range of development
programs for conventional and strategic forces.
In terms of overall military planning, the
Russian Government is emphasizing research and
development over production in its parceling of
a tight defense budget. The Community continues
to monitor the modernization of its strategic
forces, including the
testing of new land-mobile and sea-launched intercontinental ballistic
missiles.

China has bought weapons and weapons technology
from Russia, including modern fighter aircraft,
air defense systems, and submarines. In fact,
China's once hostile relationship with Russia
is now touted by both sides as a new type of
"strategic partnership" for the next century,
with a strong emphasis on cooperation and high-level contacts. As a consequence, the
Intelligence Community is monitoring China's
acquisition of this advanced Russian weaponry
as well as the continued expansion of Chinese
strategic nuclear forces.

Transnational Issues

The Intelligence Community also has focused on
transnationa1 "borderless" issues that threaten national
security both at home and abroad; these include
proliferation, terrorism, narcotics, and international
organized crime.

Few issues have more serious long-term consequences
for US interests than the worldwide proliferation of
weapons af mass destruction and the missiles intended to
deliver them. At least 20 countries--some of them hostile to
the United States--already have or may be developing nuclear,
biological, and chemical weapons and ballistic missile
delivery systems. The Intelligence Community has made
significant contributions to the Administration's efforts to
stem the proliferation of such weapons. Some examples of non-proliferation successes include:

The Community identified an important BW agent
research, production, and storage complex at
Stepnogorsk in Kazakstan and is supporting the
current high-level USI/Kazakstan talks that have
begun dismantlement assistance and will lead to a
redirection of people and facilities--the first US-sponsored redirection of a foreign biological
weapons plant.

Intelligence revealed that during 1996 Iran
attempted to procure precursors for chemical agents
which would make it less vulnerable to the export
controls of its foreign suppliers.

Intelligence Community resources collected and
analyzed materials (in direct support of US forces in
Bosnia) to identify potential CW capabilities in the
region.

Joint intelligence efforts produced a BW field
kit which addressed concerns of the US
military.

The President's Counterterrorism Initiative, begun last year,
directly enhances intelligence capabilities that are designed to
provide actionable tactical intelligence, as well as direct
support to, and participation in, joint and multilateral
operations while bolstering the classical provision of strategic
intelligence. In keeping with this Initiative, the DCI created a
Terrorism Warning Group (TWG). The TWG is staffed by
representatives from the Department of State, Defense Intelligence
Agency, Centra1 Intelligence Agency, Federal Bureau of
Investigation, and the National Security Agency. This highly
expert group's exclusive focus is on the review of intelligence
from all sources to provide warning to senior policymakers on
possible foreign terrorist attacks against US and allied
personnel, interests, and facilities. The DCI's Counterterrorism
Center (CTC) achieved numerous successes in FY 1996, among which
were the following:

Providing intelligence information that led to the
foiling of the Ramzi Ahmed Yousef plot to place bombs
aboard ten US commercial aircraft in Asia and a
conspiracy to assassinate the Pope.

Providing critical assistance in determining who was
responsible for the assassination attempt on Egyptian
President Hosni Mubarak in Addis Ababa.

Working with other elements of the diplomatic and
Intelligence Communities to effect the rendering into
US custody of Lebanese Sunni terrorist Marwan al
Safadi, who was linked to terrorist plots in South
America.

Working with the Department of State, to provide
extensive counterterrorism assistance to allies
worldwide, including states of the former Soviet Union
and a number of key Middle Eastern countries such as
Israel and Egypt. Over 18,000 individuals in 50
nations have been trained in techniques and tactics to
counter terrorism over the past decade.

In recent years the partnership between the intelligence and
law enforcement communities has evolved into a symbiotic
relationship in which the growing dependency of law enforcement on
near real-time actionable tactical intelligence from National
Foreign Intelligence Program (NFIP) elements has been matched by
the increasing reliance of NFIP analysts on data obtained from
operational successes. This cooperation is nowhere more evident
than in the transnational issue areas of counternarcotics and
internationa1 organized crime.

The Administration's strategy for confronting the mounting
transnational problem of drug abuse and drug trafficking entails
the integration of domestic and international efforts to reduce
both the demand for and the supply of drugs. The Intelligence
Community is helping to implement this strategy by providing
coordinated foreign intelligence support to law enforcement and
host nation operations and to diplomatic initiatives designed to
disrupt, dismantle, and immobilize key cocaine, heroin, and
methamphetamine trafficking organizations. The intelligence
provided supports attack upon all aspects of narcotics
trafficking--production, shipment, finances, leadership, and
organizations.

In addition to the expansion of narcotics production and
trafficking, money laundering, financial crime, alien smuggling and
criminal involvement in the gray arms trade are also increasing and
presenting significant challenges to governments and law enforcement
authorities worldwide. The Administration's approach for combating
these alarming transnational trends is to launch a multilateral
campaign against the international criminal cartels, especially
those in Italy, Colombia, Mexico, Southeast Asia, Nigeria, and the
successor states of the former Soviet Union.

Although not a traditional topic for intelligence, the
Intelligence Community has become increasingly engaged in these
transnational issues, with the following achievements to its
credit:

In the broadest cooperative operation to date, involving
six Latin American countries, a major Colombian maritime
trafficker was arrested in Panama City.

With US intelligence and law enforcement support,
Colombian forces apprehended virtually all of the
targeted Colombian drug kingpins. More than a dozen
additional traffickers were also captured, including
other Colombian drug lords as well as top traffickers
from Peru, Ecuador, and Bolivia. Intelligence support
was also key to the arrest of several East Asian
heroin traffickers.

Intelligence support was an integral part of a multi-lateral alternative development program led by the
United Nations Drug Control Program in Burma.

The DCI's Crime and Narcotics Center has developed all-source analytic tools to help expedite dissemination of
actionable intelligence to law enforcement agencies.

Intelligence has revealed economic espionage directed
against sensitive or proprietary information of an
economic or financial nature belonging to US firms.

GLOBAL COVERAGE

Global coverage entails providing advance notice of an
impending crisis (effective indications and warning) and retaining
flexible and resilient collection assets and analysts to enable the
Intelligence Community to surge collection and analysis against a
situation or country on a temporary basis. These activities focus
on supporting diplomatic operations to deter war, resolve conflict,
support civil authorities, and promote peace; they include smaller-scale
combat operations, peacekeeping and peace enforcement
operations, and humanitarian relief operations. They can involve
the threat or use of force. By their very nature crises are
unpredictable, and US forces must be prepared to participate
anywhere in the world, upon short notice. To ensure an adequate
response to an erupting crisis, the Intelligence Community furnishes
support to the military so that it is prepared to conduct combat
operations and sustain a range of concurrent operations in distant
theaters; this support is as diverse and geographically distributed
as the operations themselves:

Actionable intelligence support contributed to the
successful US-led effort to end armed border clashes
between Peru and Ecuador and throughout 1996 assisted
US policymakers in mediating a lasting settlement.
Tailored analytic support helped the chief US mediator
move the parties toward settlement talks, which are
likely to begin this year.

Imagery intelligence provided critical insights on the
numbers, status, and location of Rwandan refugees in
the Greet Lakes region of Central Africa as the
international community grappled with a rapidly
changing situation and attempted to define an
appropriate humanitarian response.

Community agencies to include the Central Intelligence
Agency, National Reconnaissance Office, National
Imagery and Mapping Agency, National Security Agency,
and the Defense Intelligence Agency and intelligence
components of the Military Services have increased
their training with US operational forces. One
example is the provision of threat modeling and
simulation capabilities, varying from one-on-one to
many-on-many campaign models for current and forecast
threat environments. Military operators now receive
training that includes realistic levels of
expectations of support that can be obtained from
national intelligence systems.

In addition to warning and surge capabilities, global
coverage requires sustaining adequate, albeit minimal, baseline
coverage on lower-priority countries. The Intelligence Community
supports many other intelligence needs that are neither "hard
target" nor candidates for crisis operations. These include
environmental intelligence on noncompliance with international
agreements and illegal shipments of hazardous materials and waste,
as well as economic and trade information. Although the
Intelligence Community is a relative newcomer to these issues, it
has made several contributions both at home and abroad:

Intelligence information and analysis have been
especially valuable in detecting violations of
international environmental agreements, such as the
Montreal Protocol on substances that deplete the ozone
layer.

Intelligence support to US customs and the
Environmental Protection Agency has assisted in
interdicting illegal chlorofluorocarbon (CFC)
shipments headed to the United States.

Intelligence also has begun to enhance official and
public understanding of global health threats, such as
HIV/AIDS--an area where some foreign governments
withhold information in their official reporting.

Preparing US officials for, and supporting them
during, international negotiations on commercial,
economic, and financial subjects.

Exposing questionable trade practices by foreign
companies or governments--such as bribes, kickbacks,
collusive commercial arrangements, disguised
subsidies, and so forth--that may be harmful to US
firms.

LONG-TERM STRATEGY

For the Intelligence Community to ensure its ability to
deliver distinctive actionable information well into the 21st
century requires a sound programmatic and financial basis for
major new investments. The Community currently is taking concrete
steps to increase significantly integration across programs and to
reduce independent, duplicative collection, which previously
hampered efficient management. Because activities of a similar
nature were often funded under several different programs, it was
difficult to assess tradeoffs between programs or know where best
to make reductions. Last year, the House and Senate intelligence
oversight committees and the Commission on the Roles and
Capabilities of the US Intelligence Community (the Aspin-Brown
Commission) conducted a thorough examination of the Intelligence
Community's roles and responsibilities. All parties agreed that
the DCI needed to develop a more "corporate" strategy for the
continued conduct of US intelligence activities.

Central to the successful implementation of this strategy are:

More systematic tracking and refining of intelligence
requirements; and,

The Intelligence Community's corporate approach is manifested
in its efforts to make better use of the capabilities that already
exist through the creation of the National Imagery and Mapping
Agency and the Joint Space Management Board. In addition, the
Community has initiated a wide-reaching personnel reform effort,
better synchronization of human intelligence operations, closer
and mutually beneficial dialogue with the law enforcement
community, and improved oversight in the areas of covert action
and counterintelligence.

Recognizing that the annual budget is the primary vehicle for
effecting change within the Intelligence Community, the Report of
the Commission on the Roles and Capabilities of the US
Intelligence community (the Aspin-Brown Commission Report)
specifically noted the need for a better framework to assess
tradeoffs among the various capabilities within each intelligence
discipline as well as across the disciplines. It applauded the
Community's initial efforts to develop a Mission-Based Budgeting
framework which links intelligence activities with the
accomplishment of missions outlined annually in the National
Security Council's US National Security Strategy and the Defense
Planning Guidance of the Department of Defense. By shifting the
focus to the contribution that intelligence makes to missions--to
intelligence output rather than intelligence capabilities--the
Community can assure its customers that their priorities will be
accorded maximum intelligence support.

Over the past year, the Intelligence Community has developed
a more efficient process for making program and budget decisions
so that the DCI and Deputy Secretary of Defense can determine
whether or not their funding decisions will satisfy mission
requirements. The first step was to more closely align the
process for reviewing the National Foreign Intelligence Program
(NFIP) managed by the DCI with the Joint Military Intelligence
Program (JMIP) and the Tactical Intelligence and Related
Activities (TIARA) aggregation managed by the Secretary of
Defense.

A key component of this new joint process is the Intelligence
Program Review Group (IPRG), a senior board of intelligence
oversight and resource managers from across the national and
defense intelligence communities which identifies, evaluates, and
prioritizes crosscutting programmatic and resource-related US
intelligence issues. This group recommends immediate and
proactive courses of action to the Expanded Defense Resources
Board, chaired by the DCI and the Deputy Secretary of Defense.

Last year, almost 90 intelligence issues were nominated for
evaluation by the IPRG--ranging from how to fund and develop new
automated data processing systems to whether or not the
Intelligence Community should invest in commercial imagery. If an
issue was considered a "major"issue, working groups were formed
to examine thoroughly all aspects of the topic, including
requirements, areas of controversy, funding, and potential cuts
that would be made to other systems or activities to free up
resources. In total, 39 issues were evaluated by the IPRG, with
changes in funding made to 17.

Besides introducing changes in process, the Intelligence
Community is actively developing the tools and staff to better
analyze and evaluate intelligence programs. Although more work
needs to be done in these areas, the Community Management Staff
has begun to develop a Program and Budget Data Base System
designed to accommodate a matrix approach to budget analysis,
thereby allowing the DCI to evaluate how particular capabilities
are contributing to intelligence missions. The database is in its
early stages, however, and will need to be further refined over
the coming year. Concomitant with this database development is
the ongoing acquisition of a planning, programming, and budgeting
staff dedicated to aiding the DCI in his oversight of the
intelligence budget.